Pepsico's recent announcement that it would conduct a joint promotion of its products with Yahoo, one of the most popular sites on the Internet, is promising news for Web site operators that have struggled to persuade the richest advertisers to spend their money online.
Even as the Internet achieved mass-market audience levels, consumer goods advertisers like Coca-Cola, Nabisco and - until now - PepsiCo, have kept their wallets shut, spending mere pocket change on the Web. They have argued that the medium may be great for direct marketing, but it does little to advance their primary advertising goal: increasing brand awareness.
Although that sentiment still dominates, industry executives say such advertisers have begun to experiment more with Internet advertising campaigns. "Experiment," in fact, is the operable word.
"A number of us have made commitments to Internet advertising," said Dave Burwick, vice president for marketing of PepsiCo. "We've all tried different things, and we're all trying to learn from each other, because nobody's cracked the code."
Whoever can, analysts said, could open a vault. Consumer goods companies account for about one-quarter of the $200 billion spent in non-Internet advertising annually. But online, that share is still well under 10 percent, said Patrick Keane, an analyst with Jupiter Communications, the Internet research firm.
"For this business to really take off, it's incredibly important for the consumer brand advertisers to join in," Mr. Keane said.
At least for now, the deal between Pepsi and Yahoo is noteworthy more for the companies involved than for the dollar amount. Mr. Burwick, of Pepsi, said the arrangement was "essentially a barter agreement."
Pepsi will promote Yahoo on 1.5 billion soft drink bottles and with displays at 50,000 stores around the nation. Yahoo, in turn, will promote Pepsi's products on a new, co-branded site that Yahoo will operate, called PepsiStuff.com. During the promotion, which is scheduled to begin in August, bottle caps of Pepsi's brands will contain a code that can be redeemed online for prizes and discounts.
Mr. Burwick said that even though this first deal would not involve a monetary investment, it would ultimately result in future ad spending on Yahoo. "It would've happened anyway, but it wouldn't have had the teeth it'll have now," he said. "There's a lot of learning that will go on with this, about what works and what doesn't."
What does not work, Mr. Burwick said, is an advertising approach that mirrors television. "TV viewers are passive - they say, 'Entertain me. Move me,'" he said. "On the Web, they're saying, 'Interact with me.' So you have to have a more active experience. It's different than throwing a bazillion banner ads out there."
Indeed, consumer goods advertisers have consistently derided banners, the rectangular ads that appear at the top of Web pages, which remain the workhorse of Internet advertising. The consumer goods companies, which are accustomed to high-impact television spots designed to elicit an emotional response, say banners are too small and too limited in what they can convey through sound and video.
Multimedia banner ads do exist, but many Web site publishers reject them because they generally slow down the performance of the site for people who have modem connections - still the majority of Web surfers. So advertisers are left to pitch their products with flat, unobtrusive ads that are frequently ignored. Although some studies have shown that static banner ads can increase brand awareness, the stigma remains.
Advertising agencies have also been reluctant to find creative ways to make banners work, said Rich LeFurgy, chairman of the Internet Advertising Bureau, an industry trade group. "There's an institutionalized preference for TV on behalf of agencies," he said. "The big creative guns are more interested in sitting by the Beverly Hills Hotel pool shooting a TV package than putting something together for the Internet."
But such obstacles are diminishing in the face of other factors, said Anil Singh, Yahoo's chief sales and marketing officer. "The Web has become such a mainstream lifestyle element that companies can't ignore it anymore," he said. "So for us, everything's coming together nicely and we're seeing a lot more activity."
Others are as well. Over the past several months, ads for consumer brands like Pizza Hut have shown up on Lycos. And Unilever ahs deepened its commitment to Microsoft's MSN portal, sponsoring channels with brands like Lipton tea and Dove soap, and agreeing to sponsor the MSN Europe site.
Meanwhile, companies like Nike and Johnson & Johnson have bought multimedia Internet ads using technology created by Unicast Communications. Since the ads do not slow a site'' performance demonstrably, they have gained approval from sites on America Online's network, among others.
"Things are moving a little more quickly than we'd thought" with consumer products companies moving online, said Mr. Keane, of Jupiter Communications. Last year, Mr. Keane predicted that consumer goods companies would slowly increase the share of their advertising budgets on the Internet, from 2 percent in 1999 to 7 percent in 2003. If the online experiments by Pepsi, Procter & Gamble and others bear fruit, he said, those dollars should flow even more quickly.
Mr. Singh, of Yahoo, said ad campaigns on the Web can be constantly tested and refined - giving the Web an advantage over other media like television or print, where the absence of direct feedback makes testing logistically difficult, and where production costs are higher and lead times longer.
Since Web portals and Internet advertising networks like DoubleClick Inc. cover multiple sites and tens of millions of users, they can test campaigns and refine them in a multitude of ways. For instance, they may experiment with sponsorships, banners, contests and e-mail advertisements, evaluating the response by tracking the respondent's behavior and, in some cases, through surveys. "There's a lot of work that goes into finding things that meet the advertisers' objectives," said Mike Siegenthaler, marketing manager for MSN.
Mr. Siegenthaler said that refinements had even yielded success with static banner ads. That, in turn, has begun to change the lowly reputation of banners. In past years, he said, advertisers focused on so-called click-through rates of banner ads - the rate at which users clicked on an ad - to determine a campaign's effectiveness. Advertisers saw click-through rates plummet from about 2 percent in 1998 to 0.5 percent in the past year, and used that data to justify their continued refusal to buy such ads.
"But now people are realizing that there has to be value in all the other ads that are not clicked on," he said referring to the brand awareness that can result from the banner ads' simply appearing on the screen.
Some marketers remain unconvinced, however. Mr. Burwick, of Pepsi, used banner advertisements last year, with the introduction of Pepsi One. But he said he would now limit such efforts, and instead seek more innovative marketing arrangements, such as the one with Yahoo. "Unless it's a new product where you have real news, banners are just not effective," he said. "We don't want to view this medium as another mass broadcast vehicle."
Bob Tedeschi, The New York Times. April 3, 2000.
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